- Underallocated investors are increasingly interested in commercial real estate as market conditions improve in 2026.
- Transaction volumes remain muted, with refinancings outpacing new acquisitions for the foreseeable future.
- CRE property values are stabilizing, though overall values remain below recent peaks and office assets have declined the most.
- Appraisal yields have steadied and institutions are, on average, 90 basis points below targeted allocations to CRE.
Shifting Market Momentum
According to Globe St., investor interest in commercial real estate is rising after several years of weak returns and difficult capital markets. Debt markets improved significantly in 2026, creating new momentum across the sector. However, higher interest rates and tight liquidity still suppress overall transaction volumes.
As a result, most activity now centers on refinancings rather than new property acquisitions. At the same time, stable CRE income continues to attract investors who remain underallocated to the sector.
Valuations Show Signs of Stabilizing
Key industry indices reflect the challenging period CRE has faced. The Expanded NCREIF Property Index posted seven straight quarters of negative returns from late 2022 through mid-2024. Green Street’s Commercial Property Price Index reported that CRE values fell 22% from April 2022 highs to the end of 2023 and are still 16% below those peaks. Office is the most affected, with values dropping 35%. However, the latest PREA forecast calls for slight appreciation in 2026, and appraisal yield metrics have now stabilized.
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Allocations Below Target
Many institutional investors remain underallocated to commercial real estate, partly due to the outsized performance of the stock market. Across institutions, real estate allocations fell 50 basis points last year, leaving average allocations 90 basis points below target, according to the Hodes Weill Real Estate Allocations Monitor. At the same time, many global investment funds have been adjusting their real estate strategies, increasingly shifting capital toward property types such as retail and data centers while reassessing exposure across other sectors. This shortfall, coupled with improved debt availability and increased equity flows, is expected to drive more CRE investment activity over the next two years.
Refinancings Dominate Activity
Refinancings continue to outpace new acquisitions, a trend that began well before 2023. MSCI Real Capital Analytics data show refinancings made up over half of CRE loan originations since 2017, rising to over 60% since last year. A significant rebound in property values would be needed to encourage more owners to sell and to increase acquisitions relative to refinancings, so this pattern is likely to persist through 2026.
